A 'Stimulus Package'?

Congress is gearing up to create a "stimulus" package to help soften a downturn in the American economy. Is this even an area, though, where government intervention is likely to help?

Both political parties seem determined that the federal government should create a “stimulus package” of things designed to cushion a downturn in the economy.

That alone should be enough to make us remember that “the devil is always in the details,” because things that are bipartisan are often twice as bad as things that are partisan.

A bipartisan intervention is virtually guaranteed to be a grab bag of inconsistent policies thrown together in order to get the votes of people with contradictory ideas of what ought to be done.

The idea of a stimulus package is based on the general notion that there are things the government could do to make things better in the economy.

Unfortunately, there is a vast difference between what the government could do and what it is likely to do.

Economists can give you all sorts of scenarios in which government intervention could make things better, whether when fighting off a recession, regulating domestic markets or controlling international trade.

Some people even believe that whenever there is “market failure,” the government ought to step in.

Of course markets can fail. Everything human can fail. But if Alex Rodriguez strikes out, do the Yankees take him out of the game and send in a pinch hitter for him?

No one would dream of suggesting such a thing. We are far more rational when discussing sports than when discussing politics.

The fact that the market is not doing what we wish it would do is no reason to automatically assume that the government would do better.

There are too many examples of government interventions that made things worse, the Great Depression of the 1930s being the most tragic.

Those on the left love to believe that the stock market crash of 1929 showed the failure of the free market and that the New Deal interventions in the 1930s saved the day.

But the stock market crash of 1987 was just as big and Ronald Reagan resisted loud calls for him to intervene. The result was not another Great Depression but the beginning of a decades-long period of prosperity.

Before Presidents Herbert Hoover and Franklin D. Roosevelt came along, there was no expectation that the federal government would intervene when the stock market crashed or when there was a downturn in the economy.

Previous stock market crashes and previous downturns in the economy worked themselves out faster and less painfully than the Great Depression of the 1930s, just as the 1987 crisis did.

The track record of government intervention is far less impressive than its rhetoric.

One of the biggest problems with government intervention in the economy is that politicians usually have neither the knowledge nor the incentives to intervene at the right time.

Bruce Bartlett has pointed out that most government intervention in an economic downturn comes too late. That is, the problem it is trying to solve has already worked itself out and the government intervention can create new problems.

More fundamentally, markets readjust themselves for a reason. That reason is that people pay a price for their misjudgments and mistakes.

Government interventions are usually based on trying to stop them from having to pay that price.

People who went way out on a limb to buy a house that they could not afford are now being pictured as victims of a heartless market or deceptive lenders.

Just a few years ago, people who went out on that limb made money big-time in a skyrocketing housing market. But now that they have been caught in the ups and downs that markets have gone through for centuries, the government is supposed to bail them out.

Solving short-run problems, especially in an election year, often means creating long-run problems. Pumping money into the economy can help many problems. but do not be surprised if it also leads to inflationary pressures and financial repercussions around the world.

Thomas Sowell is a Senior Fellow at The Hoover Institution at Stanford University in California. He has published dozens of books on economics, education, race, and other topics. His most recent book is his memoir A Man of Letters.

7 comments from readers  

To post comments, please log in first. The Atlasphere is a social networking site for admirers of Ayn Rand's novels, most notably The Fountainhead and Atlas Shrugged. In addition to our online magazine, we offer a member directory and a dating service. If you share our enjoyment of Ayn Rand's novels, please sign up or log in to post comments.
Tom Sowell is so often right on the money with his comments. I so enjoy his columns and analysis, I wish he could be more widely viewed. Thanks for bringing this to my attention. I will try to spread the word to my friends.
It is indeed true that the government is hurting us far more than it is helping us. The "economic stimulus" package they seem to be so proud about is nothing that will do any of us any real good. $600 per person might by some groceries, for a short time- but will more likely result in a temporary and short-term increase in sales of big screen televisions.

I am a machinist, and have been working and saving for years to slowly purchase the tools I need to begin building industrial robots. Because I am white, employed, have no history of drug abuse, and have no children, it has been declared by those who run our country that I must pay for their whims. I pay taxes at a higher rate, and get little or nothing back at the end of the year- while those around me who do very little of value, earn almost nothing and have several children get more of "their" money back in the form of tax rebates than they paid in in the first place.

But I do not want a larger tax rebate. I want the government to keep it's hands out of my paychecks. If they want to stimulate the economy of the United States, we should abolish or severely truncate the taxes paid by all of it's citizens, and instead raise the funds needed to operate the government through international tariffs on communist countries who use the forced labor of political dissidents to create their products.

Any forced labor creates an inferior product- and this is something that we've all seen in the news. Lead paint and date-rape drugs are added to children's toys, manufacturing defects are overlooked, and US patent laws are ignored as a matter of routine. While it is the right of any country to produce what it will to the rest of the world to the best of it's ability, there is no guarantee that we should give them the "employee discount" of allowing them to sell freely to the citizens of ours if they feel that they have the right to maintain a system of government that is diametrically opposed to the fundamental value of liberty.

So, here's an economic stimulus that might actually work as more than a simple band-aid on some of our problems- let's get our own government off our backs, and get back to work. The money that has been taken from me every week over the last 17 years of working towards my goal has been enough that if it would have been in my hands, I would have already been ready to begin producing equipment that has the potential to raise the efficiency and quality of the US manufacturing sector- instead of spinning my wheels scrounging up second-hand machines and materials. Then, we would have the option to buy those 6-packs of tube socks for a dollar from Wisconsin, by paying one or two technicians what they are worth to run one of my machines- instead of tacitly supporting those who hit a price point by forcing hordes of untrained workers to produce inferior products through intimidation and threats.

I am just one American- and I refuse to believe that I am the only one who still has dreams and ambitions. Let me keep the fruits of my own effort, and I will achieve my goals that much sooner. I have no doubt that the same is true of many other Americans, wherever Americans, and not television slaves, may still be found.

Somewhere there is a farmer with an idea for a new kind of milking machine, a line worker who knows a better way to install a screw in a production part, and a manager who would launch a new product- if the capital were there for the risk.

There's no guarantee that these people will succeed, just as there is no guarantee that I shall. But I would prefer to let them keep what they can earn, to make those successes much more easily possible. $600 will not buy a mill, or delivery of steel. It will not pay for one television advertisement to promote a new product, or keep the lights in one factory on for one month. Keeping the profits earned from productive work will. All this "stimulus" will do is give a lot of impatient children a day of shopping at their local Wal-Marts.
Excellent. If only your column were in the New York Times! The Wall Street Journal! People need to hear this.
but is "predatory lending" an issue?

I get the impression people were somehow tricked by the small print ~
I appreciate Dr. Sowell's clear analogies and resolute understanding of governmental meddling in market economics. I will pass this and similar articles on to as many people as I can in the hope that others will awaken to an era where personal responsibility trumps bureaucracy yet again.

Though in the past Atlasphere has been home to some rather scathing comments of Ron Paul, Republican candidate for President of the United States, I wonder whether Dr. Sowell might offer an endorsement of the one candidate who is running on a clear policy of reducing governmental intervention and allowing the market to follow its course.
What confuses the hell out of me is how surprised everyone seems to be about the real estate downturn. When the homes in my neighborhood began closing at FOUR TIMES higher at the end of a 5-year period who would ever conclude we were in anything but a bubble?

Yet we're given the impression from TV that no one could have guessed at such a result. Foreclosures? Housing surplus? People not being able to use simple multiplication ($1200/mo X 30 years does not equal $500,000)? Who'd a thunk it?

Well, I think anyone with a little more than half a brain thunk it.
Excellent piece, as usual.

I also enjoyed your recent appearance on Hannity & Colmes. Most entertaining, to me, was when you explained to Holmes that some "find statistics to fit their preconceptions" -- which is precisely what Colmes tried in his dialogue with you. I couldn't have asked for a more concrete example than that. Thanks.
To post comments, please log in first. The Atlasphere is a social networking site for admirers of Ayn Rand's novels, most notably The Fountainhead and Atlas Shrugged. In addition to our online magazine, we offer a member directory and a dating service. If you share our enjoyment of Ayn Rand's novels, please sign up or log in to post comments.